ECB Fears Banks Are Misusing Its Liquidity Plan

Frankfurt–The Frankfurt, Germany-headquartered European Central Bank expressed concern on Thursday about banks taking advantage of its efforts to unfreeze funding markets by abusing its liquidity plan to offload more risky assets than it had planned, the Financial Times said.Because signs persist that some banks are fashioning low-rated assets in order

Frankfurt–The Frankfurt, Germany-headquartered European Central Bank expressed concern on Thursday about banks taking advantage of its efforts to unfreeze funding markets by abusing its liquidity plan to offload more risky assets than it had planned, the Financial Times said.Because signs persist that some banks are fashioning low-rated assets in order to trade them for treasuries at the ECB, governing council member Yves Mersch said that the ECB was “looking very hard at whether there is not a specific deterioration of collateral” that the bank is accepting in exchange for funds.As some mortgages have become harder to sell, central banks have stepped up to the plate to provide funding–but on a short-term basis while securitization markets are still frozen.The Bank of England recently made a facility for U.K. banks to gain mortgage funding; almost £90 billion ($175 billion) in bonds are being made for it–almost twice the £50 billion first expected when the plan kicked off three weeks ago, according to the Times.